Bombay Stock Exchange's BSESN dropped 3.75%

The Bombay Stock Exchange's BSESN dropped 490 points (or, 3.75%) to 12,582 point at 4.02 am ET (see Chart 1 below). The sharp drop was apparently due to The Reserve Bank of India's decision on March 30 to lift its overnight lending rates to a 4 1/2 year high of 7.75 percent as well as to raise the reserve requirement of banks to 6.5 percent from 6 percent. It was the central bank's third rate increase since December, aimed at stemming loan growth and inflation.



Chart 1: BSESN's intra-day chart as at 4.02 am ET

How bad is the current fall? The BSESN appears to be in a recovery path after the recent March sell-off, which has resulted in the BSESN breaking its medium-term uptrend line at the 14,000 level (see Chart 2 below). If the current drop were to break below the 12,300/400 level, we could see the re-commencement of the downtrend for the BSESN.



Chart 2: BSESN's daily chart as at March 30

Conclusion

The volatile global equity market has made intra-day & short-term trading very hazardous. While medium-term investors may be less affected, it may be timely to re-adopt the policy of "selling into strength, buying into weakness" until we have better visibility & stability in the market.